Global Economic Monitor

​Prospects Daily: European shares fall as German business confidence weakens, U.S. consumer confidence and new home sales hit post-crisis highs, Turkey’s central bank cuts benchmark interest rate again

European stock markets retreated on Tuesday after a survey showed German business confidence was dwindling. The Stoxx Europe 600 Index fell 0.2% with Germany’s DAX and U.K.’s FTSE 100 index sliding at least 0.1%. But the benchmark Stoxx index is gearing for a third monthly gain, supported by the European Central Bank’s unprecedented stimulus measures that were unveiled in early June.

Indian financial markets rallied today as sliding oil prices eased inflation concerns. The country’s benchmark stock gauge, Sensex, gained 1.4% after slumping 1.9% over the past four trading sessions on rising oil costs. The Sensex index has advanced 20% this year, posting the biggest gain among the world’s 10 largest markets, amid expectations the new government will take steps to cool inflation and boost growth. India’s 10-year sovereign bonds rallied as well, with the yield sliding 6 basis points to 8.72%, the steepest drop in nearly three weeks.

Jordan issued $1 billion of 5-year sovereign bonds backed by the U.S. government to help reduce its budget deficits. The Middle Eastern nation, rated ‘BB-‘ by S&P, was last in the international debt market in October, when it sold $1.25 billion of seven—year bonds guaranteed by United States Agency for International Development.

High Income Economies

Reflecting a notable improvement in consumers' assessment of current business conditions, the Conference Board consumer confidence index for the U.S. jumped more-than-expected from 82.2 in May to 85.2 in June, the highest since January 2008. Economists had expected the index to edge up to 83.5 from the 83.0 originally reported for May.

Rebounding from weakness over a severe winter, U.S. new homes sales soared 18.6% to a seasonally adjusted annual rate of 504,000 in May after rising 3.7% to a revised rate of 425,000 in April. Economists had expected sales to climb to a rate of 440,000 from the 433,000 originally reported for April. With the latest increase, new home sales reached their highest level since hitting a matching rate in May 2008.

The Ifo Institute business sentiment index for Germany deteriorated more-than-expected to a six-month low of 109.7 in June from 110.4 in May as firms turned more cautious about the potential impact of the crises in Ukraine and Iraq. Economists had forecast the index to drop marginally to 110.3. The current situation index remained unchanged at 114.8 in June, while the expectations index dropped to 104.8 in June from 106.2 a month ago.

Developing Economies

East Asia and Pacific China’s leading economic index, which measures perceptions of future economic conditions, continued to rise in May but at a slower 0.7% (m/m) pace to a score of 290.2 following a 1% increase in April and March. The coincident index, which provides a measure of current economic activity, also rose by 0.7% in May, unchanged from April, but slower than March’s 1.5% increase.

Europe and Central Asia
Earlier today, Turkey’s central bank lowered for the second consecutive month the one-week repo rate, its benchmark interest rate, reducing it by 75 basis points to 8.75% from 9.50% in May, a deeper cut than expected. In reaching this decision, the central bank cited the recent improvement in global liquidity conditions, its expectations for disinflation as private consumption growth and the adverse effects of exchange rate depreciation moderate, and improvement in the current account balance driven by a recovery in foreign demand. Meanwhile, the overnight lending rate and the borrowing rate were left unchanged at 12% and 8%, respectively.

Hungary’s central bank also cut its key interest rate for the 23rd consecutive month, reducing it by 10 basis points to a record low 2.30% in line with economists’ forecast, citing unused capacity in the economy and its expectations for inflationary pressures to remain moderate for an extended period.

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